The right policies boost public listing of stocks, says NGX boss Popoola

In this interview with DAYO ADENUBIA, the director of Nigerian Stock Exchange Limited, Mr. Temi Popoola, among other things, speaks about deepening the stock market in the country

The demutualization of the exchange was completed in March after which you became the CEO of the Nigerian Exchange Limited. What has been the experience?

Let me start by going into the corporate restructuring that The Nigerian Stock Exchange has gone through and what demutualization means. The NSE switched to Nigerian Exchange Group Plc with three wholly owned subsidiaries including Nigerian Exchange Limited (NGX), NGX Regulation Limited (NGX RegCo) and the NGX Real Estate Limited (NGX RelCo). NGX is the operational exchange, in charge of all commercial activities of the exchange, including listing, trading and support services. NGX RegCo is an independent company that conducts most of the exchange’s regulatory activities through a regulatory services agreement. NGX RelCo is the real estate company established to provide customized real estate rental, real estate investment and facility management services.

We took this approach to fully commercialize the functions of the exchange as a corporate entity and differentiate the regulatory function to avoid conflicts of interest. This allows NGX to focus on exploring new opportunities, leveraging strategic partnerships and transacting to make a profit.

The NGX era is indeed very exciting for us and we will continue to champion African capital market growth through trade and investment that will facilitate Africa’s economic recovery and reposition the continent for sustainable economic development. As we look to the future to build on our rich heritage as the first and foremost multi-asset stock exchange in Nigeria, championing the sustainable growth and prosperity of Africa, there are three core themes that will guide our plans. The first is a digital transformation journey that should make it easier for investors to access products on the exchange. Second, we have a clear plan to use the exchange as a platform to accelerate the current state of innovation and growth within Tech and ICT in Nigeria. Third, the exchange will continue to develop innovative products and services that stimulate activity in our capital market.

What else should we expect after demutualization?

There are a few strategic themes that we are pursuing after demutualization and the two initiatives you mentioned are by-products of these strategic themes. In particular, we want to innovate on the kinds of investable products investors have on the exchange, democratize finance through technology, drive listing growth (particularly those related to technology companies), improve the customer experience and bring new sources of liquidity to our attract markets. To do this successfully, we need to form the right partnerships, work effectively with all our stakeholders and stay on top of the ever-changing financial landscape. For example, derivatives provide an alternative path to access the markets alongside traditional cash stocks, while the digitization of the fact book helps us digitize our products and offerings.

Your annual report shows that the revenues of new issuers have fallen and have been in that downward trend for a few years now, what happens to IPOs on the stock exchange?

If you look across the continent, you will see that the topic of falling IPOs is not unique to Nigeria. The main driver of this trend is the plethora of options, many non-traditional, currently available to companies looking to fund their business. It is therefore important that we as an exchange strive to make ourselves more competitive, but perhaps more importantly, innovate our products and services to ensure that we can facilitate capital formation beyond traditional stock listings. We’re reviewing our rules to see what changes we can make to help companies raise capital more efficiently while protecting the investing public. We work with several stakeholders, including the SEC, our top regulator, to ensure that time-to-market and listing costs are optimized. We are strengthening the value proposition for companies to view the capital markets as a platform for raising capital and ensuring that we are competitive compared to options available to clients. It is equally important that we work closely with policymakers to shape reforms and policies that support listing activity and the capital market in general. For example, many of today’s listings occurred as a result of government-related policies that supported listing activity. At NGX, we want to provide a platform for public and private sector players to raise capital to achieve their business goals and achieve greater success in optimizing resources. Over the years you would have noticed that changes in key policies have sparked a wave of listing activity across all sectors, of which the 2005 banking consolidation is a recent example. We are therefore actively involved in policy formulation and advocating for a favorable environment for listings.

Finally, we need to attract the right kinds of offers to the exchange. Investors generally aim to maximize their returns and it is therefore important that we are able to list companies with strong growth potential. We do a lot in the field of technology as we are convinced that this sector is the key to the next stage of Nigeria’s economic growth.

What do you do when deepening the market to attract more high-growth companies?

Currently, NGX has the Growth Board for High-Growth Companies and we are currently exploring how to better address some of the barriers to entry for companies seeking to be listed on this board. This board is intended to help these businesses access financing and it is important that they are encouraged and retained. That’s why we’re currently engaging trade groups, business associations, and government agencies to see how we can drive growth here. We also pay a lot of attention to technology. There are currently five unicorns in Nigeria and the exchange is exploring ways our platform can help fuel the massive growth in that sector. As you know, we have not witnessed the wave of new quotes in the capital market, but we are awakened almost every other week by news of a technology company closing a capital increase. We are committed to making the exchange a means of capital formation for technology companies to raise capital and for those who have invested to find liquidity for their investments. To further fuel the conversation, we hosted the inaugural TechNovation conference in September, bringing together leading industry experts to discuss digital transformation in the Nigerian capital market. We see TechNovation as an idea-sharing platform that can create opportunities for savvy business leaders seeking the next level of growth and competitive advantage, and will continue to prioritize opportunities to create value through thought leadership and ecosystem engagement.

What are your strategies to increase the participation of retail investors in the market?

Participation of retail investors rests on three pillars: diversity of products, access to financing, easy access to the stock exchange. Without the right mix of products to suit investor needs, we will struggle to attract retail investors. For example, many investors today are looking for geographic diversification of their portfolios and mechanisms to hedge exposure to a single currency. It is important that we build on our existing range of products and innovate on new products that can meet the needs of investors. One such product is derivatives, which we are in the very last stages of launch. This product will help provide risk management for investors while allowing investors who have a focused view of the market to express their views. We will seek to innovate around several other asset classes outside of our traditional stocks as we explore areas where capital is formed and innovate on how to scale using our platform. Since it is about easy access to the stock market, we will try to catalyze a digital transformation of the capital markets, similar to what we have seen in the banking sector. We need to attract the young population, which currently makes up the bulk of Nigeria’s demographics but is a significantly under-represented investor class in the stock market. To do this, we need to use technology. Most of the solutions already exist. Our marketing has also changed with our new direction, with partnerships and technology at the core to attract more store investment. There are industries such as telecommunications and commercial banking that have huge distribution networks that make up a significant portion of the Nigerian population. As such, penetrating the Nigerian population through them is an important part of our strategy to increase participation in the retail sector. Moreover, the millennial Nigerian generation is highly tech savvy and quickly accessible via mobile devices. As you know, we’ve been working remotely for a while, aided by the investments that The Exchange’s management had made in the past. We are now going to use the digital platform to bring in more investment from the millennium generation. The X-Factbook, X-mobile are examples of platforms that are fully digital and will contribute to inclusion and access to data that will form the basis for the information formation process that will benefit investors.

Will we soon see a future listing of some of the public companies like the NNPC on the stock exchange?

The Nigerian National Petroleum Corporation has publicly stated that they are approximately two years away from listing and we are delighted to have the opportunity to explore various capital market related financing topics with NNPC. An NNPC listing will have a positive knock-on effect on the Nigerian capital markets and will go a long way towards deepening the current transformation taking place within the organization and the industry in general. It has long been argued that the capital markets provide a great opportunity for the government to provide some of its financing needs to address many of the structural challenges the country faces. Historically, we have had capital markets primarily to fund government spending plans, but there is a need for innovation beyond traditional norms. For example, we think that capital markets can be used to monetize government assets that are currently dormant and can be used to drive needed investment in critical parts of the economy to complement government efforts.

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